Mexico's Gross Domestic Product Rises 3.9% on U.S. Demand

The year-over-year rate in the second quarter is the fastest since 2000. One analyst expects solid growth this year.

Mexico's economy grew in the second quarter at its fastest pace since 2000 on resurgent demand from the U.S. for the country's electronics, oil and metals.

Mexican gross domestic product, the broadest measure of output of goods and services, grew 3.9% from the same period last year after expanding 3.7% the previous quarter, the Finance Ministry said Tuesday. Mexico's economy expanded 1.2% from the first quarter in seasonally adjusted terms, the ministry said.

Latin America's largest economy is rebounding from its three slowest years of growth since the peso devaluation in December 1994. It is benefiting from expansion in the U.S., buyer of 85% of Mexico's exports.

"Unless the U.S. falls off a cliff, we'll see solid growth this year in Mexico," said Michael Gavin, economist for Latin America at UBS Securities in Stamford, Conn.

"I'm seeing signs of growth, and I hope the situation gets even better," said Alejandro Camacho, general manager of textile manufacturer QG de Monterrey. The company, which fired 115 workers, or half its workforce, in the first quarter because of weaker U.S. demand and competition from Chinese rivals, is preparing to hire 40 employees for a second shift as sales pick up, Camacho said.

Given that the U.S. economy has grown 11 quarters in a row, Mexican GDP should be expanding even faster, said Jim Barrineau, senior vice president for global economic research at Alliance Capital Management in New York.

Economic growth of 4.25% -- the high end of the central bank's forecast for this year -- would be more than 1 percentage point below Mexico's average growth rate of 5.4% between 1996 and 2000. In those years, the maquiladoras -- import-export factories along the U.S. and Mexican border -- flourished before China entered the World Trade Organization.

"It's a little troubling the fact that at the top of the U.S. economic cycle Mexico can grow 3.5%, maybe 4%," Barrineau said. "Once the U.S. slows, there will be a problem."

China gained lower U.S. tariffs on exports with entry into the WTO in 2001, helping it surpass Mexico last year as the second-biggest exporter to the U.S. Mexico has failed to counter Chinese competition as a divided Mexican Congress blocks President Vicente Fox's initiatives designed to lower energy and labor costs.